Blog Post

Why Chinese Drywall Causes Insurance Problems

by Thomas Zuo

Consider yourself lucky if you have never heard of Chinese drywall. The faulty building material has been at the forefront of widespread litigation during the last few years and has raised a number of complicated insurance issues. Homeowners in the U.S. with houses built using drywall manufactured in China experienced both physical ailments and property damage to components of their home. The magnitude of the problems underscores the need for comprehensive insurance coverage, as no one homeowner or corporation would be able to withstand the cost of damages. The Chinese drywall problem also exposed a need for homeowners to understand exactly what materials are being used to build their homes and the potential consequences of those choices if the materials were potentially harmful.

While Chinese drywall cases have occurred throughout the nation, the majority of issues are found in southern states, particularly Florida, Louisiana, and Alabama. According to CNN, the widespread use of the material emanated from the building boom of the last decade, in addition to the rebuilding generated by Hurricane Katrina in 2005. These two factors led to a shortage of materials and to cope, contractors sourced their drywall from Chinese manufacturers. But after the new homes were completed, homeowners started to smell unpleasant odors in their homes.

Initially, the problems with Chinese drywall were believed to be isolated to the smell. But then some homeowners subsequently alleged personal injury as a result of breathing the air in their homes. Additionally, some homeowners with Chinese drywall discovered corrosion to their pipes due to the fumes emanating from the drywall. As a result of these problems, many lawsuits, including class actions, were filed by affected homeowners against various parties involved in the homebuilding process. But along with the finger pointing came confusion as to which insurance policies should respond to the homeowners’ claims. Some believed they should be covered by the home insurance policy, while others believed they should be liability claims against the parties responsible for the material.

Eventually, homeowners were victorious after a judge ruled in 2010 that home insurance policies should respond on behalf of homeowners. According to the Times-Picayune, the insurance companies cited exclusions for pollutions and contamination, which the judge ultimately found was not applicable in this case. However, homeowners should be aware that such findings usually result in changes to future insurance policies. Insurance policies evolve over time, and a large claim that results in unintended coverage on the part of the insurance company generally means that the standard policy form will be modified to exclude such losses in the future.

As a homeowner, you should be concerned about the issues arising out of Chinese drywall, even if you do not have that specific material in your home. For example, if you are having work done on your home, you should ask your contractor about the materials being used. Are any of them sourced from outside of the U.S.? Do any of them pose a potential health risk? You should also verify that your contractor has sufficient amounts of general liability insurance in case you need to make a claim against him in the future. As the Chinese drywall case exemplified, damages are not always immediately apparent and may not even arise for several years. For this reason, do not discard your contractor’s insurance information just because the work has been completed.